Telephone Pitches Tar Reputations of Coin Dealers

The Federal Trade Commission raided and shut down a Costa Mesa coin seller Aug. 18, charging in a civil complaint that the company defrauded customers by misrepresenting the quality and value of coins it peddled by telephone.

It was the fourth time in 10 months that the FTC had filed civil charges against a company marketing rare coins for investment purposes and the first such action on the West Coast.

But it won't be the last.

Orange County, land of liquid assets and high-rolling investors, also is home to more than half a dozen coin telemarketing operations that are being scrutinized by law enforcement agents who believe that, while telephone marketing is a legitimate sales technique, some coin sellers are abusing it by fraudulently relieving investors of their bankrolls.

And that has Rettew and other legitimate rare coin dealers in the county concerned--about the image of their profession and about the business the bad publicity is sure to cost them.

"Whenever someone who calls himself a coin dealer gets into trouble, the general public is suspicious of all dealers," said Rettew, owner of Rare Coin Investments in Newport Beach, one of the three largest and oldest of the handful of county coin dealerships specializing in rare, investment-quality coins.

And in a county where legitimate coin transactions total more than $125 million a year, a slump in business--or heavy competition from often-unscrupulous telephone marketing operations--takes a lot of dollars out of dealers' tills.

The boiler-room coin sales operations are believed to be taking in an average of $1 million a month each, said Kathryn Holguin, an investigator assigned to the state boiler-room task force in Los Angeles. At least 10 of the 150 telephone marketing operations being watched by the task force are heavily involved in coin sales, she said, and "most of them" are in Orange County. That adds up to more than $100 million a year in coin sales by Southern California-based telemarketers.

And because of a recent surge in the popularity of rare coins as an investment vehicle, the market is being crowded with eager buyers who know little or nothing about coins and how they are graded and priced. They are simply looking for appreciation.

At Numis Group, the Costa Mesa telemarketing operation placed in receivership by the FTC earlier this month, salesmen were allegedly quite successfully selling old Spanish pieces of eight for $850 each. A customer at Rettew can buy the same type of coin for about $85--and Rettew said he buys them wholesale for about $60 apiece.

Numis customers also were buying ancient Roman gold dinars coins, sight unseen, for $400 per coin, according to customer complaints that prompted the FTC investigation and subsequent raid, said FTC attorney Robert Friedman, who supervised the case.

Within a few days, the price had jumped to $750 per coin with no shortage of customers, said Holguin, citing records seized during the raid. The company's records showed that Numis was paying only $35 each for its dinarii coins, and the FTC closed down the company because it was representing that the coins were worth far more than that, Holguin said.

Numis has been placed under the control of a receiver, and its former officers could not be reached for comment. The receiver would not comment on the case, and the documents filed by the FTC in federal court in Los Angeles have been sealed at the request of the commission.

An FTC official in Los Angeles said a temporary restraining order that prevents the company from doing business has been issued. Further proceedings in the case have not yet been scheduled, and clients are being told that no information will be available until Sept. 18.

Although some novice investors have been paying grossly inflated prices for old coins, there are ways to avoid being victimized, and most legitimate dealers make an effort to establish their credentials and satisfy customers that they are in business to stay.

Investing in coins has long been popular among the very wealthy. Many investment counselors urge clients to place up to 20% of their assets in rare coins or precious metals, or a combination of both, as a hedge against inflation.

But coin investing really blossomed two years ago, when an annual Salomon Brothers survey of 15 investment vehicles ranked rare coins as the top investment for the previous 10-year and 15-year periods.

And the Salomon report for 1987, issued in June, again showed rare coins as one of the best investments around, ranking sixth for the year with a 10.7% compounded rate of return and first for both the past 10 years--a 16.6% annualized rate of return--and 15 years--an 18.8% return.

By comparison, oil was a distant second for the long term, with a compounded rate of return of 13.9% for 15 years. U.S. stamps ranked third at 13.6% for 15 years, while gold at 11.9% and silver at 10.3% finished fourth and fifth for the 15-year investment period.